Land related services are exempt from VAT under VATA 1994, Schedule 9, Group 1. However, the Chancellor has announced in his 2012 Budget that the classification of Schedule 9, Group 1 items is to be tightened.
Some of the main classifications losing the VAT exemption are the rent-a-chair systems in place in many hair salons across the UK. The rental of a defined space under the current rules is tantamount to a rental of land which still remains VAT exempt. However, under the new rules coming out of the Budget, the rent-a-chair system will no longer be a rental of land and will be standard rated for VAT purposes. This will mean that many independent stylists will have to become VAT registered if their taxable supplies exceed the VAT registration threshold or will have to monitor their taxable supplies every month to see if and when they must register for VAT. Where stylists become VAT registered, it will most likely increase the cost of your haircut.
The second ‘land related service’ under the current rules to be targeted is the supply of ‘self-storage’ units. This will no longer be subject to the VAT exemption for the supply of land. All supplies of storage will now be subject to VAT at the standard rate of 20% in the UK.
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